The Time is Right for First-Time Homebuyers

It's a great time to be a first-time homebuyer.

Housing prices have fallen steadily over the past few years, and first-time buyers have their pick of the housing market without having to sell their own homes. In fact, first-time buyers accounted for a bigger share of home purchases this year than the previous two years, according to the National Association of Realtors.

Still, buying your first home is a major financial decision. Understanding the dollars and cents of buying a house will give you a head start toward making a successful purchase.

Here are a few financial tips for buying your first home.

Make a budget: Before buying a house, know what you can afford. A mortgage lender can help you figure this out, but it's a good idea to know how much of your monthly budget can go toward a mortgage payment. In general, your annual housing costs should eat up less than 30% of your income. If you make $50,000 a year, plan to spend $15,000 or less annually, or $1,250 a month, on housing.
Bear in mind that figure includes your mortgage as well as any other housing costs, including property taxes and regular maintenance. These added costs can total 5% per year of your purchase price, and should all be figured into your monthly budget. For more on the hidden costs of homeownership, read here.

Research a mortgage: The most popular types of mortgage is a fixed-rate mortgage (FRM), in which your interest rate doesn't change over the life of the loan. Nevertheless, some homebuyers opt for an adjustable-rate mortgage (ARM). ARMs often carry a fixed rate for a set number of years, after which your rate (and therefore your mortgage payments) will change each year. (For more on the difference between ARMs and FRMs, read here.